Ladies and gentlemen, boys and girls, the hedge fund industry is about to heat up. That’s right you heard it here first – the hedge fund industry is about to explode-in a positive way. “Explode” that is in the number of new funds that will launch in the marketplace. Therefore, I suggest that there is no time like the present to call the lawyers, call the accountants, call the prime brokers and get your game in first gear. My belief is that right after Labor Day, Wall Street firms will announce significant layoffs and that means an entire new crop of potential hedge fund entrepreneurs is going to come on the scene. In short, it is time to get started because the industry can not fall much further and when you hit the bottom, it is the perfect time to strive for the top.
If you start now, a new fund should be up and running by January 1. What better way to start the New Year than with the new hedge fund you have been thinking about launching and that’s what’s going to happen. If history is any lesson, as more and more financial firms lay people off, the hedge fund industry is going to grow and grow and grow, because as I’ve discussed recently in this blog, the cost of getting a hedge fund up and running has decreased substantially over the last five years. As a result, it’s very easy to hang out that shingle and get into business.
Make your calls today because before you know it, the lawyers are going to be overwhelmed with new people starting funds and you want to be ahead of the crowd so the lawyers, accountant, etc. can handle your requests. As our friends across the pond would say, you don’t want to be the last one in the queue.
Recently I’ve been receiving emails from people asking about seeder and emerging market platforms. It seems that everyone wants a piece of the action that these people are offering. At the same time, however, the emails all remain suspect about the deals that are being offered. My answer is, I don’t know how to insure that you cut the best deal; nor do I know which incubator or emerging manager platform is really putting money to work. The only advice I can give is my repeated approach to fees. The theory goes something like this: you should never give up fees because fees are what allow you live, breathe, eat, drink, and be merry. Unfortunately, most managers – new and old – feel that they have to give up some fees in order to get the assets in the door. I think this a slippery slope. I’m always very concerned about managers who are willing to give up too much equity or too much income in order to get 5, 10, or 15 million dollars. If someone offers a 100 million or 200 million or even 75 million dollars, then it may be worth talking about preferential treatment. But if they’re only giving you five million dollars, it’s not worth it to shave some fees because the money that you’re not going to earn is going to hurt you and the evolution of your business.
There are two critical keys to survival in the hedge fund business. First is a good track record and the second is be ready to fight another day. By giving up fees, you are potentially giving up your ability to fight another day. Do it only if you absolutely have to to survive but try to avoid it at all costs.
With that, I’d like to tell you to stay cool and drink lots of fluid, but it’s really cold and damp in the New York metropolitan area so therefore, I say stay warm, dry and hope for the best.
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